Extended Benefits Kept U.S. Jobless Rate Higher, Study Says

After the recession, extended jobless benefits kept the unemployment rate half a percentage point higher than it otherwise would have been, according to new research from the Federal Reserve Bank of Atlanta.

Extending the maximum length of benefits beyond 26 weeks made highly educated unemployed people “more ‘relaxed’ and more patient in selecting jobs,” wrote Lei Fang and Jun Nie in a new working paper, “Human Capital Dynamics and the U.S. Labor Market.” Had unemployment benefits not been extended, they estimated, “the unemployment rate during the 2010-2012 period would have been 0.5 percentage point lower than the actual level.”

Making benefits available to people who have been out of work for more than six months has been the subject of national debate in recent months, with federal funding for extended benefits expiring in late December. Many economists say the end of extended benefits will help bring down the unemployment rate, which stood at 6.6% in January, as unemployed people take jobs or drop out of the workforce.

One of the findings by Ms. Fang, an economist at the Atlanta Fed, and Mr. Nie, an economist at the Federal Reserve Bank of Kansas City, in their paper was that extended benefits kept the unemployment rate higher than it otherwise would have been, especially for more-educated workers. Economic output was depressed because fewer people were working, but extended benefits also increased labor productivity because they “allowed unemployed workers to be more patient in selecting jobs” and find better matches, the economists wrote.

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